When Free Traders Win, the Nation Loses

By Donella Meadows

–April 11, 1991–

When you call it “free trade,” as currently pushed by the presidents of the United States and Mexico, it sounds like something anyone would favor. But when a noted World Bank economist calls it “individualism riding roughshod over community interests,” you start having second thoughts.

The following story of Watsonville was told by Alexander Cockburn in The Nation, November 5, 1990. The analysis of free trade is taken from Herman Daly (the World Bank economist) and John Cobb, For the Common Good, Beacon Press, Boston, 1989.

For four decades cutters and packers at the Green Giant frozen-food plant in Watsonville, California, prepared vegetables grown in the Pajaro and Salinas valleys. The workers were mostly women, paid about $7 an hour. Over the years the work force was gradually reduced by labor-saving machinery. But in 1990 came a reduction that was not at all gradual. The company announced that it would lay off 370 of its 520 workers.

The layoffs were ordered from a corporate boardroom in London. There a conglomerate called Grand Metropolitan decided to move Green Giant food processing to the town of Irapuato in Mexico. Workers in Irapuato get $4 an hour. The area around Irapuato will grow less corn and beans for domestic use and more vegetables for export, to help pay Mexico’s — and Grand Metropolitan’s — debts.

Grand Met has an enormous debt because in 1988 it bought Pillsbury, which earlier had bought Green Giant, which still earlier had bought the plant in Watsonville, then called Russo Frozen Foods.

As a result of these mergers Grand Met now owns Burger King, Haagen-Dazs, Smirnoff vodka, J&B scotch, Alpo pet foods, Pearle opticals, and much else. People in Watsonville are jobless. California farmers have lost their market. Peasants in Irapuato have jobs but find that their corn and beans are more expensive — especially since, under IMF pressure to pay the debts from its past trades, Mexico has removed its subsidies of these basic foods.

That’s the way partially free trade works. Completely free trade works that way even faster.

If either capital or labor can move freely across national boundaries, the consequence is the same: wages become equal everywhere. Labor moves to where capital is, bidding down wages, or capital moves to where cheap labor is and bids up wages.

What’s wrong with that? Wages fall in high-wage countries, but in low-wage countries they rise. That’s sharing. The trouble is, those who do the sharing are the laborers in the high-wage country, who share their standard of living with Third World workers. Given the relative numbers, it means that U.S. wages fall to Third World levels, while Third World wages rise only slightly.

The owners of capital do no sharing. They benefit from cheaper labor, first abroad and then at home. By bringing separate nations into a common, overpopulated labor pool in the name of free trade, they compete away the high standard of living of the majority of citizens of their own nation.

Social security, medical, and unemployment benefits all raise the cost of production. They cannot survive the standards-lowering competition of free trade. Environmental standards also will be competed down to the lowest level that any country in the free-trade zone tolerates.

Free trade is not trade between nations, but trade between individuals across national boundaries. Individuals make the decisions, for individual benefit. Trading firms need not act as responsible members of any nation. It is to their advantage to buy labor in a low-income country and sell product in a high-income country — to take advantage of high incomes in the U.S. market while failing to contribute to those high incomes by buying U.S. labor.

If all firms freely bought labor in Mexico and sold products in the United States, the U.S. would cease to be a high-income country. Mexican wages would tend to equality with the lower U.S. wages. Both countries’ wage level would then depend on whether Mexico controlled its population growth and on whether the U.S. population maintained its low fertility as wages declined toward subsistence.

No nation should permit that to happen. That does not mean an end to international trade. What is called for is BALANCED trade between NATIONAL entities. This means regulated trade between the U.S. and Mexico as two communities, not between firms or individuals.

Of course it will still be individuals who ultimately exchange goods, but subject to rules designed to protect national interests. One of those rules would be that there shall be no running up of unrepayable debts — hence the trade should be always balanced. Another would be the maintenance of the highest attainable standards of environmental protection and worker protection.

Free trade between the U.S. and Mexico is being hotly promoted by business interests in both countries. They label their opponents — mostly labor unions and environmental groups — “special interests.” But in fact the free-trade proponents are the special interests, fighting only for their own short-term advantage. The environmentalists and laborers are arguing for their own interests, true, but in this case their interests coincide with the long-term good of their nation

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About The Donella Meadows Project

The mission of the Donella Meadows Project is to preserve Donella (Dana) H. Meadows’s legacy as an inspiring leader, scholar, writer, and teacher; to manage the intellectual property rights related to Dana’s published work; to provide and maintain a comprehensive and easily accessible archive of her work online, including articles, columns, and letters; to develop new resources and programs that apply her ideas to current issues and make them available to an ever-larger network of students, practitioners, and leaders in social change. Read More

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